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Enterprise Products Partners L.P. Message Board

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  • seattle.stew seattle.stew Sep 30, 2010 3:08 PM Flag

    New ETN Shorts Energy MLPs - 20% EPD weighted

    Well, if nothing else, it's a sign that someone thought they could make some money by creating yet another ETF. For every bet out there, an opposite bet is available. Keep in mind that these funds will get dinged for the distribution once a quarter, so even if the prices of EPD and others were to go flat, the fund would take a hit.

    No doubt, the MLPs have done really well, so it stands to reason that many are wondering if they have topped. I own EPD (since 2007) and have pondered this. But, the fundamentals are still compelling. Natural gas is cheap, and will continue to be cheap. So, it will keep flowing. And, as long as it flows, EPD will have plenty of cash for distributions. And, as long as interest rates stay extremely low, people are going to gravitate toward these rich yields. There are very few places to get > 5% these days. Undoubtedly, that could change. I see current US policy leading to inflation. But, it will not happen any time soon. If and when it does, I will reevaluate.

    I am not in favor of bonds and I believe a bubble has formed. The difference here is that with bonds, in order to get rich yields, one must include some risky issues in the mix. Furthermore, even a small uptick in interest rates could send those bonds tumbling. If we do see rates creep up, I would not be surprised to see EPD's stock price take a hit. But, it would be insignifant in comparison.

    There is a price at which I would exit, regardless of whether there is no change in the interest rate environment. That price is where the yield falls below 5%. I don't know if that will happen. I think EPD will soon break $40. How far beyond the low 40's it can go is questionable. GLTA

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    • Historically there have been two times in the last 15 or so years when shorting a basket of MLPs made sense. First was when the credit markets went to hell. The other was when interest rates spiked in the early 2000s.

      Indeed as has already been said, for every position there is a counter position. There are probably more ETFs than stocks. Shorting MLPs would make sense in the short run if either credit became unobtainable as in 2008 or if a huge spike in interest rates made savings accounts attractive compared to MLPs. Nothing to worry about right now.


    • I don't think they actually short the components in a short etf. Or so I've been told.

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